The Need for Speed

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With massive disruption happening in the game sector and fast growth of new mobile platforms, digital game companies need to move faster than ever to execute plans, launch games and innovate faster than the competition. This presentation will share some key points on why.

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The Need for Speed

  1. The Need for Speed23 May 2013© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  2. WHO AM I?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved2
  3. – Advisor and Investor based in London for over 14 years– Strong game sector experience, knowledge and relationships– Advised on transactions in the game sector with a total valueof over $1 billion advising many companies including:– Shareholder in:Who am I?Paul HeydonPartner,LVP© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved3
  4. WHERE ARE IS THE GAMESECTOR HEADED?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved4
  5. First, some context© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved5
  6. THE COMMERCIAL INTERNET IS NOW~20 YEARS OLD© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved6
  7. As of year-end 2012: 2.5+ billion people online© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved7
  8. ~35% of global population© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved8
  9. © 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved9
  10. Penetration of WW Population, 5 YearsAfter Launch1%3%4%8%PCs (1988) Facebook (2009) Internet (2000) iOS & Android (2012)8X 3X 2XSources: United States Census Bureau, International Telecommunication Union, Facebook, Flurry© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved10
  11. Device sales are pushingpeople onto the mobileInternet© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved11
  12. Smartphone growth continued, while PCshipments actually declined last year© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved12
  13. And the disparity will only growWe are here© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved13
  14. © 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved14
  15. So, what do people doon mobile?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved15
  16. Mobile consumers glued to games, facebook,and entertainmentSource: Flurry, April 2013© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved16
  17. Downloads continue to grow franticallyApple justhit 50bn appdownloads!© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved17
  18. And time spent in apps continues to skyrocket© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved18
  19. Android has by far the largest platform forsmartphones© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved19
  20. So Apple users are a minority … butits platform pays 4X better© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved20
  21. Which is why it has developer’s attention© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved21
  22. And why Apple has dominated apprevenues© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved22
  23. Mobile advertising will grabthe spotlight in 2013© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved23
  24. Many look at thisTripled since 2009© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved24
  25. And thisSource: Mary Meeker (KPCB), eMarketer, IAB9% gap© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved25
  26. A few big companies with good mobile adformats can make mobile ads pay© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved26
  27. More mobile video ads and location-basedads will lift CPMs© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved27
  28. More opportunities for TV-style video ads asconsumers watch more and longer videos© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved28
  29. Tablets provide a boost to mobile ad prices© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved29
  30. But advertising is now the most popularmonetization tool© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved30
  31. Why Consider Mobile Ads in Game?• To make lots of money!• Some mobile games have 50%+ of revenuecoming from in-game ads, mainly video• One example is generating $100k+ per dayjust from ads31© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  32. Key disruptions in the game sector»Platform – From Console/ PC to Tablets/ Smartphones»Shift to mobile happening faster than many expected»Business Model – From Paid to Free»50% of the top 10 grossing apps in the US iOS Appstore are free gamesdeveloped by VC backed game developers»Operations – From Products to Services»Game developers need multiple types of third party services from analyticsto advertising to payment»Small is the new Big – From Big Publishers to Small Developers»Low development costs and faster development to minimum viable productfor Launch enabling millions of people to make games»Speed Matters – From Game Idea to Launch»Game development is planned in # of months vs # of years© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved32
  33. EVER HEARD OF PUZZLES &DRAGONS?33© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  34. OR GUNGHO?34© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  35. Gungho Entertainment SharePerformance• $14.2bnmkt cap• +6952% inlast 12 mths• FromPuzzles &Dragonsgame• $113m revin April/1335© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved-500,000.000.00500,000.001.00mm1.50mm2.00mmMay-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13GungHo Online Entertainment, Inc. (JASDAQ:3765) - Share Pricing
  36. Mojang• Founded in May 2009 by Notch in Swedenwith launch of Minecraft• Bootstrapped; never needed to raise money• Now– 3 games but Minecraft is on many platforms– 2012 Rev of 1.5bn SEK ($226.1m) & operatingincome of 584.9m SEK ($87.9m)36© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  37. Supercell• Founded in 2010 in Helsinki, Finland with seedinvestors• May 2011- Series A round with Accel Partners• 1 year ago– Little revenue with various games in pipeline• Now– $2.4m per day– From 2 games: Clash of Clans & Hay Day– Sold €100m shares at €600m valuation to Index Ventures,IVP and Atomico– Q1 $179m rev with $104m EBITDA– One of the fastest growing game companies ever37© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  38. SO WHAT DOES THIS ALL MEANFOR A GAME STARTUP?38© 2011 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  39. MASSIVE SUCCESS IS POSSIBLE;EVEN WITH FOCUSSING ON A VERYSMALL NUMBER OF GAMES39© 2011 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  40. »Game startups do not need the following at start:»Millions of dollars»Large teams»They do need at start:»Tens or hundreds of thousands of dollars»Small team of very talented people whom»Work fast»Create great games»Are innovative»Focus on»Making games for a large potential user base»Metrics»A decision on which platform(s) to launch with»Ability to think or imagine big»Research on third party services; which and whyThis means that:© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved40
  41. If You Get Strong Traction• Then investors will call• You will have luxury of:– Raising money– Selling some shares– All of the Above– Doing nothing & focussing on your success41© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  42. But• Dont focus just on your success– Keep updating your game• Start developing more games• Ultimately you need a diversified portfolio• Success breeds copies• One game’s strong revenue will not lastforever; maybe a long time but not forever42© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved
  43. WHO ARE LVP?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved43
  44. David Lau-KeeGeneral PartnerDavid GardnerGeneral PartnerPaul HeydonGeneral PartnerPhil HarrisonAdvisor30+ yearsEAAtari25+ yearsRenderwareCriterionfounder15+ yearsING BaringsCommerzbankAvista Partners25+ yearsMindscapeSonyAtariMicrosoftLVPTeam© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved44
  45. LVP: Our Value AddFor Entrepreneurs• Will be valued as a strategic investor but independent• Global relationships with potential strategic partners including• Strong experience in building fast growing world class companies• Extensive network of top sector people to hire as employees, advisors or consultants• Proven track record of success in the sector• Deep domain knowledge and insight• Very experienced with fundraising and M&A© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved45
  46. Investments to Date© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved46
  47. WHY INVEST IN THE GAMESECTOR?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved47
  48. Global Exits/IPO’s in Game Sector0.02,000.04,000.06,000.08,000.010,000.012,000.014,000.016,000.018,000.020,000.01997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012North America Europe Asia/ Pacific$44bn value created for VC/PE investors and/orfounders since 1997Source: Capital IQ, Company Filings, Brokers & Press(USD$ millions)© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved48
  49. Largest Europe Liquidity Events inGame SectorTotal Value Creation: $6.4bn in Europe since 1997 Source: Capital IQ, Company Filings, Brokers & PressNote: Including secondary dealsExit/ IPO Deal Value (USD$ millions)TT GamesBigpointPlayfishBigpointSN SystemsBizarre CreationsEidosMental ImagesCodemastersCriterionRarePlayJamFuncomAstrumDigital BrosGameloftMindscapeWeka EntertainmentScoreloopSupercell0100200300400500600700800900Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13 Jan/14© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved49
  50. Mobile Game Market Size$11.7$31.9$0.0$5.0$10.0$15.0$20.0$25.0$30.0$35.02012 2016Source: Gartner, IDC, Magid, Flurry & Goldman Sachs research estimates from "Mobile Monetization: Does the shift in traffic pay?" by Goldman Sachs June 4, 2012$31.9 bn total addressable market for Mobile Games by 2016CAGR 28.5%(Billions $ USD)© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved50
  51. WHAT WE LIKE TO SEE INCOMPANIES TO INVEST IN© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved51
  52. © 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved52
  53. + +INTELLIGENCE INSIGHT PASSION© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved53
  54. vs© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved54
  55. LOW LATENCY IDEAS© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved55
  56. FAST ITERATION© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved56
  57. CURIOSITY
  58. MORE THAN ONE GAME© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved58
  59. WE LIKE TO UNDERSTAND WHY PEOPLE LIKE IT© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved59
  60. GOOD CHEMISTRY© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved60
  61. WHY WE DO THIS?© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved61
  62. WHY WE DO THIS• Frustrated with bad inertia at big companies• Early investors at Playfish, Unity, NaturalMotion• Funding for “games” was hard• Love Europe• Love Entrepreneurs (that listen)• Love the industry© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved62
  63. WHAT YOU SHOULD DO© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved63
  64. © 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved64
  65. “If Pac-Man had affected us askids, wed all be running around indark rooms, munching pills andlistening to repetitive electronicmusic.”― Marcus Brigstocke© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved65
  66. Paul HeydonLondon Venture PartnersEmail: paul@londonvp.comWeb: www.londonvp.comTwitter: @pheydon66
  67. Disclaimer• This presentation was prepared by London Venture Partners exclusively for the benefit and internal use of Recipient(s) in order to provide some thoughts onfundraising in the game sector. This presentation is incomplete without reference to, and should be viewed solely in conjunction with oral briefing provided byLondon Venture Partners. The presentation is proprietary to London Venture Partners and may not be used for any other purpose without the prior written consentof London Venture Partners.• The information in this presentation reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing thispresentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all the information available from publicsources or which was otherwise reviewed by us.© 2013 London Venture Partners LLP Confidential and Proprietary, all rights reserved67

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